Gold Market Could See Quiet Start To Next Week Ahead of FOMC And Employment Data
(Kitco News)- While gold prices are off their 1.5-year highs seenmid-week, the market is still holding on to strong gains and many analysts havesaid that they still see the potential for higher prices, even if there is amodest consolidation period.
The gold market is looking to end the week in positiveterritory as it hovers around the critical psychological level. February goldfutures last traded at $1,352.40 an ounce, up more than 1% since last Friday. Intotal, the gold market has seen six weekly positive closes in seven as pricesare up 9% since the mid-December lows.
After a few weeks of lackluster performance compared togold, silver is back on its front foot, outperforming the yellow metal as itmanages to hold key support. March silver futures last traded at $17.425 anounce, up more than 3% from the previous week.
Silver has seen five weeks of positive gains in the lastseven as prices are up almost 13% from its mid-December lows.
Next week will be busy with major economic events includingthe Federal Reserve’s first monetary policy meeting of the year, which is alsoFed Chair Janet Yellen’s last meeting, and employment data from January.However, commodity analysts say that they will continue to monitor gold’srelationship against the U.S. dollar as President Donald Trump’s administrationcreates volatility in currency markets.
Mid-week, gold was sent to a 1.5-month high after U.S.Treasury Secretary Steven Mnuchin said that a weak U.S. dollar had been “good”for the U.S. economy. Gold prices reversed course Thursday after Trumpcontradicted his cabinet minister, saying that he wants to see a stronger U.S.dollar. He added that Mnuchin’s comments were taken out of context.
Looking ahead, analysts remain optimistic on gold as the twocontradictory comments could indicate that the government has no officialpolicy on the U.S. dollar.
“I think ultimately if the U.S. wants a super strong Americathey want a weak U.S. dollar to drive export growth,” said Jasper Lawler, headof research at London Capital Group. “What I think this means is that they arenot going to deliberately weaken the U.S. dollar, but they are also not goingto promote strong dollar policies either.”
Lawler added that he expects gold prices to continue tobenefit from this confusion and uncertainty in currency markets.
Look For Slow StartTo Gold Next Week
Analysts have noted that after gold’s strong gains sincemid-December a price correction is not unexpected and is healthy for long-termgains. Many have noted that this late-week selling pressure couldcontinue into the early part of next week, but they add that bullish sentimentin the marketplace remains strong, which should ultimately push prices higher.
“I think we see a short-term top in the range, but I expectwe will see a bullish breakout soon,” said Lawler.
Colin Cieszynski, chief market strategist at the FundamentalTechnician, said that regardless of the Administration’s official policy on theU.S. dollar, the currency is extremely oversold and is due for a bounce, whichwill end up weighing on gold near-term.
“I don’t see a major correction in gold, but it looks likethe market is due for a healthy correction with support at $1,340 and then at$1,325,” he said.
Fed Meeting Is A NonEvent
Interestingly, some analysts see the Federal Reservemonetary policy meeting next week as a non-event. David Madden, senior marketanalyst at CMC Markets, said that because this is Fed Chair Janet Yellen’s lastmeeting, the central bank will not “rock the boat.”
He added that any comments in the statement will bedismissed as Janet Yellen’s “swan song” as this is her last meeting. He saidthat he sees the meeting posing little risk to gold's current rally.
“We could see a slow start in gold next week as someinvestors sit on the fence, but they will stay long gold until mid-February,”he said. “The March meeting is what matters. That is the meeting you don’t wantto be long gold.”
Currently, 30-Day Fed Fund futures are pricing a less than6% chance of a rate hike in January. However, markets see a 75% chance of a 25basis-point hike in March.
U.S. Employment WillBe A Driver For Gold Next Week
While some traders may nap through the Fed meeting nextweek, they will be awake Friday for the release of January’s nonfarm payrollsreport. Economists are expecting to see jobs gains of around 200,000; however,some analysts have warned that the headline job gains is no longer as crucialas wage growth.
Wages last year saw lackluster wage growth of 2.5%,economists have said that if wages don’t go up, the Federal could be forced toslow down the pace of interest rate hikes expected in 2018 and weak inflationpressures continue to grow.
“Friday’s employment numbers will be the report to watchnext week as this will set the tone for economic growth for the year,” saidMadden.
Continue To WatchEquity Markets
While the U.S. dollar remains the primary driver for goldprices, some commodity analysts are starting to pay more attention to equitymarkets, which continue to hit record highs. Madden added that if the rallybegins to fade gold could benefit as capital flows into more defensivepositions.
“Gold has done very well this past month despite recordvaluation in equity markets. Just think what would happen if equities correct.I think it’s a win-win for gold,” he said.
George Milling-Stanley, head of gold investments at StateStreet Global Advisors, said in a recent interview with Kitco News that he alsoexpects to see fund managers diversify into gold as prices push above $1,350 anounce.
Key Levels To watch
With gold hovering around $1,350, most technical analystsare watching to see if the market can break above the July 2016 highs at$1,375. Because of strong bullish sentiment, many analysts say it’s only amatter of time before this level breaks this year.
“There is a strong wall of resistance between 1365.8 all theway up to 1392.6 and the psychological $1400 mark,” said Bill Baruch, presidentof Blue Line Futures.
Chris Beauchamp, market analyst at IG, said that he iswatching initial support at $1,343 an ounce and a break of this level couldpush prices to $1,326 an ounce.
The Final Say...
While the U.S. central bank and Friday’s nonfarm payrolls willcompete for the center stage next week, traders cannot ignore a full slate ofeconomic data. Early in the week, markets will receive personal spending andincome data along with the January consumer confidence report.
Mid-week, markets will receive private-sector employmentdata as well as ISM manufacturing numbers.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.